“The very high growth rate and cost pressure in the Baltic countries during the recent years is not stable. Subsequently, it is logical and necessary with an adjustment period. The economic imbalances have to taper off. It looks like Latvia and Lithuania are following Estonia’s pattern of weaker economic performance. At the same time, the weakening Baltic economies are in a sensitive position with a yielding global economy. The exports continue to be strong but the downward trend has been re-enforced in our prognosis,” says Mikael Johansson.
The overheated economies in Latvia and Estonia will slow down considerably, to some extent due to stricter credit terms. The Baltic countries and many other economies are characterised by significant imbalances in terms of trade deficits and/or a high inflationary pressure that is slowly decreasing.
The GDP increase in the nine countries in the Eastern European Outlook is moderate from an average of 7.4 percent in 2007 to 6.1 percent and 5.6 percent in 2008-2009. In most countries, the consumption is stimulated by significant salary increases and a strong job market, while investments are sustained by EU’s structural funds, conversion efficiency in Ukraine-Russia as well as large public investment projects. The inflationary pressure depends to a large extent on increasing energy and food prices, a weakening purchasing power and somewhat stricter credit terms that will reduce demand.
Supported by high raw material prices and an expansive financial policy, Russia’s growth will last through the year. The investment upswing will continue and ease the capacity shortage in the long run. After the change of presidents, policies remain stable. However, the double leadership might create tension in the long run. Ukraine’s growth and inflation remain on a high level. Closing the financial gap from a relatively low standard of living and expansive financial policies will increase growth.
“The greatest challenge for stabilisation policies in Russia and Ukraine is the high and increasing inflation,” says Bo Enegren, responsible for Russia and Ukraine at SEB Ekonomisk Analys.
The strong growth in Poland is reduced to a sustainable level of 5 percent. The risks for overheating are moderate thanks to a decrease in global demand and a continued restraint in monetary policies. Slovakia is growing fast in a balanced way and will connect to the euro in 2009. The Czech Republic will implement reforms to stimulate economic growth. The interest rate will increase, which will reduce inflation in the long run. Hungary is experiencing major economic difficulties due to strict financial policies and is recovering only very slowly.
Emelie Ring, Editor Etablering Utomlands
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